The ratings reflect MICO’s strong risk-adjusted capitalization and good business profile in the Philippines’ non-life insurance market.

MICO’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is strong and supported by low underwriting leverage. While the company has a relatively large amount of reinsurance assets, it manages its credit risk by maintaining a panel of strongly rated reinsurance counterparties. In addition, MICO has a strong profile in the corporate segment of the Philippines’ non-life market and is the market’s largest insurer based on premium and the second largest in terms of capital and surplus.

An offsetting rating factor is the company’s unfavorable underwriting performance, which lagged behind the industry average. Its combined ratio remained high in 2015 compared with other large players in the market. Nevertheless, MICO’s performance has improved due to more benign catastrophe loss experiences in 2015 and 2016, as well as more stringent risk selection in its fire business.

Another concern is MICO’s concentration risk from its equity investments, which represent a sizable amount of its total invested assets. This risk is further exacerbated because the bulk of the equities comprise a limited number of holdings, exposing the company’s capital and surplus to adverse movement in these stocks’ prices. In particular, a decline in the fair market value of MICO’s equity investments led to a significant drop (-15%) of its capital and surplus in 2015.

Positive rating momentum is not anticipated. Negative rating actions could result from material deterioration in MICO’s risk-adjusted capitalization due to unexpectedly large fair market value reserve movements.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.

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